India-New Zealand FTA will boost services trade, support goods trade, uplift investment sentiment

The just signed India- New Zealand Free Trade Agreement (FTA) comes as a big boost for bilateral trade in services, remains beneficial for goods trade and sets an aspirational target for capital investments, experts say.

The services sector will certainly gain. New Zealand has offered commitments in 118 services sectors and most favoured nation (MFN) treatment in 139 sectors. India will facilitate market access in 106 sectors and MFN treatment in 45 sectors. In addition, the FTA creates new mobility pathways for Indian students, professionals and young workers. Indian students in New Zealand will be allowed to work 20 hours per week and STEM (Science, Technology, Engineering and Mathematics) bachelor’s and master’s graduates will get three-year post-study work visas, while doctorate holders will get four years. A new temporary employment pathway will allow 5,000 skilled Indian professionals to work in New Zealand at any time for up to three years, especially in sectors such as IT, healthcare and education. Also, a Work and Holiday visa scheme will allow 1,000 young Indians each year to live and work in New Zealand for 12 months. “Services may deliver bigger gains than goods, with New Zealand offering commitments in 118 sectors and MFN treatment in 139 sectors”, says Ajay Srivastava, founder of Delhi based think-tank Global Trade Research Initiative (GTRI).

The FTA offers trade facilitation in the goods sector also. New Zealand will eliminate tariffs on 100% of its tariff lines from the date the FTA enters into force. GTRI analysis shows that this will benefit Indian exports such as textiles and apparel, leather, ceramics, carpets, engineering goods and automotive components. India will provide market access on about 70% of tariff lines that will cover about 95% of New Zealand’s exports, including products such as wool, coal, wood and wine. Sensitive sectors like dairy and edible oils have been excluded from tariff concessions. “The FTA will open new avenues for Indian exporters by enhancing market access to New Zealand across key sectors such as agriculture, textiles, pharmaceuticals, engineering goods...” says S C Ralhan, President, Federation of Indian Export Organisations (FIEO).Terming it a significant milestone in strengthening India’s global trade engagement and expanding its export footprint, Ralhan said that with reduced tariff barriers and streamlined trade procedures, Indian businesses will gain with improved competitiveness in the New Zealand market.

However, the real gains from the tariff concessions will be limited as Indian exporters already have fairly wide access to the New Zealand market. “Tariff asymmetry is central to the India–New Zealand FTA. New Zealand’s average import tariff is only 2.3%, compared with India’s 16.2%, and 58.3% of New Zealand’s tariff lines are already duty-free”, says Srivastava.

Investment commitment is the third important feature of India-New Zealand FTA. New Zealand has proposed $ 20 billion FDI commitment over 15 years under the FTA. Srivastava welcomes the intent of the announcement but says that with New Zealand’s existing investment in India being less than $1 billion over the past 25 years, the $20 billion commitment will require a major increase in investment.

Rubix Data Sciences, in its analysis, says the India-New Zealand FTA carries significance beyond immediate trade gains. “New Zealand’s position in Oceania, combined with strong people-to-people connections supported by a large Indian-origin population, provides a platform for expanding India’s engagement across the wider Pacific region”, it says.